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Hijinks at Hewlett-Packard

What is the most surprising thing to you about what went on in the H-P boardroom?


I have a few questions about the Hewlett-Packard situation. I’m sure you do too. It’s a fast-moving story, with new revelations almost every day. By the time this e-Briefing comes out, some of these questions may be answered. But here goes:

• You mean to tell me that all the H-P directors actually sat around the board table one day and approved a motion to allow investigators to probe their off-site, personal dealings and communications?

• Or, was there a gentleman’s “understanding” that only certain of their members would be investigated?

• How did the involved directors and members of management who initiated the leak investigation expect to find the leaker without some access to and examination of phone records?

• That being understood, here is a real puzzler: If he was in the know on approving the investigation, why didn’t a director like Lawrence Babbio Jr., vice chairman and president of Verizon Communications, sound the alarm to the rest of his cohorts that any incursion into phone record examination would be at best problematic if not outright illegal? He should resign from the board in shame. If he wasn’t in the know on the investigation, why isn’t he resigning from the board in outrage over what has happened and to make a statement about Verizon being a trustworthy brand in an age of identity theft? (As a Verizon customer, I am doubly disturbed about this mishandling of phone records right under the nose of a senior officer of the company.)

Not to pick just on Mr. Babbio--there is plenty of shame and outrage to go around both on and off that board.

I’m sure all of you have your own unanswered questions or musings about this board matter gone awry. Share those with us in this month’s Question of the Month: “What is the most surprising thing to you in all that you’ve read and heard about the Hewlett-Packard director investigation scheme?”

There are no yes or no answers or suggested responses. We’re changing the format and making this an open-ended comment opportunity. This is such a riveting tale and one that everybody has an opinion on, and we welcome you to tell us yours. We’ll carve out a chunk of next month’s e-Briefing to share those responses. Click here to tell us what you think.

Our question of the month for September was “What will be the price of a barrel of oil on December 31, 2006?” No sooner did we ask this than the price of oil did a sharp reversal--from $77 a barrel to, as I write, $62. (Hmmm … maybe we should keep asking this question.) Here are your guesstimates: 
 
• Over $80 a barrel: 9%
• Between $70 and $80: 11% 
• Between $60 and $70: 31%
• Between $50 and $60: 49%
• Below $50: 0% 

I see that no one is anticipating sub-$50 prices. Maybe that is the way to bet. Wouldn’t that be a kicker?

Speaking of kickers, the special 30th anniversary edition of Directors & Boards will be a slam-bang issue. It comes off press this month. Reserve your copy today. You won’t want to miss it.

Jim Kristie is the editor and associate publisher of  Directors & Boards.

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By Paul R. Berger, Lawrence K. Cagney, W. Neil Eggleston, David P. Mason, Elizabeth Pagel Serebransky and Colby A. Smith


The spate of companies identified in the popular press as having problems with regard to the timing and pricing of option grants continues to grow. A recent study suggests that, at least with respect to the period from 1999 to 2000, this issue is prevalent at a large percentage of growth companies where options represent a significant portion of total compensation. The problems run the gamut from apparently deliberate backdating for the enrichment of corporate insiders to inadvertent errors arising from less than disciplined governance practices.

The consequences of these problems can be far-reaching, ranging from:

•    failing to reflect appropriate financial accounting charges associated with essentially discounted stock options;
•    deficiencies in the company’s disclosure in its proxy statements and periodic reports;
•    adverse tax consequences for the company to the extent the option is exercised by an officer who is a covered employee under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”);
•    adverse tax consequences for the optionee by reason of Section 409A of the Code, if the option had not vested by December 31, 2004;
•    questions regarding the authority to grant the options to the extent the plan under which the options were granted did not permit the grant of “discounted options,” particularly if the company’s state of incorporation requires shareholder approval for the issuance of stock options and similar rights;
•    possible investigations by the U.S. Attorney (particularly in New York and San Francisco) or the Securities and Exchange Commission; and
•    shareholder derivative litigation alleging, among other things, breach of fiduciary duty.

  
[Click Here to Read the Entire Article]

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Editor's note:  Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today.  If you'd like to participate in this section in the future, please email Scott Chase. 

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• The top 1,000 U.S. companies liberated $72 billion of cash from working capital in 2005 by enhancing the way they collect bills from customers, pay suppliers, and manage inventory.
• U.S. companies still have $450 billion unnecessarily locked up in working capital, based on the gap between typical companies and top-quartile total working capital performers in the Hackett-REL analysis.
• In the retail world, one top performer was able to access 9% more working capital in 2005 than 2004, while the average American retailers in general made a 3% gain.
• Industry sectors that lagged behind included cosmetics, newspaper publishers and software; supporting the notion that those industries will be under increasing pressure to perform.
• Improvement among U.S. companies accelerated dramatically year-over-year, with companies generating 55% greater levels of working capital reduction than in 2004.

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October 10-13, 2006
The National Association of Stock Plan Professionals holds its 14th Annual Conference in Las Vegas, with the theme, "Practical Guidance in a Time of Change." More than 100 of the top names in the compensation field will focus on the latest practices, strategies, and solutions for responding to new accounting requirements and fundamental changes in tax law as well as increased scrutiny of plan practices. To register, visit http://www.naspp.com or call the NASPP at 1-925-685-9271.

October 11, 2006
Heidrick & Struggles and Steven Hall & Partners host "Board Exchange," a networking and information-sharing forum for publi-company board directors to discuss top-of-the-mind board-related issues, including director selection, pay, performance, disclosure, risk and liability. Held in New York, it will be a morning panel discussion followed by a luncheon and keynote address. For more information, call Margaret McConville at 212-551-0510, or e-mail mmconville@heidrick.com.

October 12, 2006
CompensationStandards.com will hold its 3rd Annual Executive Compensation Conference in Las Vegas, which will also be available by audio and video webcast. The theme of the one-day conference is "Meeting New Standards: What Every Director (and Advisor) Needs to Know -- and Do -- Now!" and is designed for all parties involved in and responsible for implementing executive and equity compensation plans. For further information, visit 3rd Annual Executive Compensation Conference at http://www.compensationstandards.com/Conference06/register/start.asp

October 12, 2006
The National Association of Corporate Directors New York Chapter is having a luncheon program on "Role of the Lead Director." Topics tackled will be: What value is it creating? What are some of the pitfalls? How is it interfacing with the chairman and CEO? On the panel will be Arthur Martinez, retired chairman and CEO of Sears Roebuck; John Krol, retired chairman and CEO of Du Pont; and Robert Holland, former president and CEO of Ben & Jerry's Homemade Inc., and the discussion will be moderated by Roger Kenny, managing partner, Boardroom Consultants. To register, call 1-866-648-3369, or e-mail oleary@nacdny.org.

October 15-17, 2006
The National Association of Corporate Directors (NACD) holds its 2006 Annual Corporate Governance Conference. Themed "The Board Agenda: Driving Long-Term Value," the program will cover the evolving best practices in board oversight of executive compensation, strategy development, succession planning, board evaluation, and the results of the NACD's 2006 Blue Ribbon Commission on "Board Practices in High-Performing Companies." The conference will be held at the Renaissance Mayflower Hotel in Washington, D.C. For registration and hotel information (last year's conference sold out) call 202-775-0509, or visit http://www.nacdonline.org

October 23-24, 2006
The Sanders Morris Harris investment banking firm is holding its "Middle Market Investor Growth Conference." It is its second annual invitation-only conference designed for discerning public companies and qualified investors. Directors & Boards is a promotional partner for this event. For information, contact Amy Gottenberg at 212-508-4003 or e-mail amy.gottenberg@smhgroup.com.

October 25, 2006
Directorship is presenting "Agenda 07," a one-day forum that previews major board governance issues in store for next year. Among the speakers will be Harvey Pitt, Jim Cramer, Ken Langone, Richard Breeden, Christie Hefner, John Connolly, and Pearl Meyer. The program will be held at the Union League Club of New York. For registration, call 617-399-3042, or visit http://www.directorship.com

October 25-27, 2006
The New America Alliance presents the "6th Annual Wall Street Summit." Among its objectives, the event focuses on increasing access to markets and capital for Latino businesses, promoting the participation and influence of Latinos on our nation's corporate and pension fund boards, and investing in the higher education of American Latinos in the fields of business and finance. National leaders and top executives from the finance industry who will be participating include SEC Commissioner Roel Campos; New York Governor George Pataki; New York Attorney General Eliot Spitzer; CalPERS CEO Fred Buenrostro; and Jack Kemp, co-director of Empower America. the summit will be held at the Waldorf-Astoria Hotel in New York. For more information, visit http://www.naaonline.org

October 29 - November 2, 2006
The Thunderbird Global Family Enterprise Program will present "Are You Prepared to Operate Your Family Enterprise on a Global Scale?" The program is designed to prepare family enterprises to effectively manage growth, establish successful governance strategies, and ensure continuity across generations of family leaders. It will be held at the Royal Palms Resort in Phoenix. Visit http://www.thunderbird.edu/familybusiness for more information.

November 1-3, 2006
The Center for Corporate Excellence will hold its "Changing the Game" Forum in Denver. The event is designed to be a thought-provoking conference covering current issues in corporate accountability and executive responsibility. Vanguard Group Founder Jack Bogle will be presented with the Center's Exemplary Leadership Award, which recognizes those who have demonstrated excellence in corporate governance and ethical leadership. For more information, visit http://www.centerforcorporateexcellence.com

November 2-3, 2006
The University of Wisconsin-Madison presents its Directors' Summit. This ISS- and NACD-accredited event freatures keynote speakers John Morgridge, Chairman of Cisco Systems and Tom Stemberg, founder of Staples, as well as panel discussions on a variety of topics. For more information and to register, visit http://www.directorssummit.com or call Celeste Taber at 608-441-7311 or 800-292-8964.

November 9-10, 2006
Bank Director magazine and NASDAQ present the second annual Bank Executive and Board Compensation conference at the Four Seasons Resort & Club, Dallas at Los Colinas. This event will focus on CEO and director compensation challenges and solutions specifically related to financial institutions, and brings together leading experts and advisers, as well as experienced bankers, such as Harris H. Simmons, chairman and CEO of Zions Bancorporation, to provide best practices. Attendees receive a free, personalized board compensation review from Clark Consulting (http://www.clarkconsulting.com) and option for a free private consultation at the conference. For more information, call 800-452-9875 or visit http://www.bankdirector.com/conferences

November 15-17, 2006
The 2006 University of Delaware Directors' College will convene at the university's John M. Clayton Hall Conference Center in Newark, Del. Topics to be tackled include: How can directors effectively oversee executive compensation? How do your board activities compare to others? Where will the regulators focus next? And, what can directors do to protect themselves legally? The program is hosted by PricewaterhouseCoopers and the University's Lerner College of Business and Weinberg Center for Corporate Governance. To learn more about the program, visit here.

November 30-December 1, 2006
ODX, the Outstanding Directors Exchange, will hold its next gathering at the Ritz-Carlton New York, Battery Park. The conference is for directors to exchange real-life experiences and solutions to the issues they face in the boardroom. Speakers at this session include George David, chairman and CEO of United Technologies; Martin Lipton, founding partner of Wachtell Lipton Rosen & Katz; and Steve Miller, CEO of Delphi Corp. To register, call 212-542-1224, or visit http://www.theODX.com

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Boardroom Briefing:  Mergers & Acquisitions
Directors & Boards' Boardroom Briefing:  Mergers & Acquisitions is now available.  This edition focuses on such key issues as the board's role in M&A, fairness opinions and valuation opinions, post M&A compensation and more. The results of Directors & Boards' most recent survey on M&A is also included. To view the Boadroom Briefing online, visit here.


Survey Shows Slow Going for Women Directors
The Forum of Executive Women, an organization of influential women leaders in the Philadelphia region, released in September the research results from its sixth annual Women on Boards survey, a look at how the boards at the 100 largest publicly held companies in the region reflect gender diversity. Despite some minor progress, the landscape has changed little since last year, and Philadelphia-area companies have made virtually no progress over the past few years.

The executive summary of the research, which will be available online this month at http://www.foew.com, shows that despite the large pool of qualified female executives, most public companies stalled in their efforts to place women on local corporate boards in 2005. “The numbers have not moved significantly” from the prior year’s survey, said Kyra G. McGrath, president of the organization and vice president for strategic projects and general counsel for WHYY Inc. “They have stayed flat or, in a few cases, gone in the wrong direction. On the positive side, we are encouraged that the 2005 data show that two more nominating committee member chairs are women, and that the nearly 16 percent of available open board seats were filled with women last year — a big increase.”

CalPERS Increases Corporate Governance Investments
The California Public Employees’ Retirement System has authorized its staff to invest up to $600 million alongside successful partners in the CalPERS Corporate Governance Program. CalPERS took the action following reports that its 10 external corporate governance funds had achieved annualized returns of 17.7 percent from their inception in January 1999 through March 31, 2006 — almost three times more than the industry benchmark.

"The figures tell the story, and it’s all good news," said Rob Feckner, CalPERS board president. "By improving poor financial performers, our corporate governance investments show that we can do very well by doing good in the marketplace." CalPERS (http://www.calpers.ca.gov) is the nation’s largest public pension fund with assets totaling more than $210 billion.

Bridging the Gap Between a Great Keynote and Real Results
Washington Speakers Bureau (WSB) has launched the WSB Impact Channel, a new business unit devoted entirely to helping organizations implement the strategies offered by its renowned business speakers. WSB Impact Channel’s Impact Solutions are web-based training programs that teach organizations how to adapt and implement the business strategies and management practices offered by luminaries such as Tom Peters, Mike Abrashoff, Tom Morris, Ann Rhoades, Chip Bell, and Michael Treacy.

“Executives are always asking our speakers, ‘What’s next — how can we adopt these strategies at our company?’” said WSB’s CEO and founder Harry Rhoads Jr. “Complementing a powerful keynote with a longer-term performance improvement program is a natural and effective way to improve results.” WSB (http://www.WashingtonSpeakers.com) is the world's No. 1 lecture agency, representing influential world leaders, business and management experts, motivational speakers, media personalities, humorists, and sports figures. It is a part of Omnicom Group Inc. (http://www.omnicomgroup.com).  

Author Notes
For information on board development, CEO coaching, and executive team development, visit the website of Change Leaders Inc., http://www.change-leaders.com. Marjan Bolmeijer, the founder and CEO of the firm, which specializes in the above three developmental areas, was the co-author with Change Leaders’ Aart Pijl of “A Personal Action Plan for the CEO,” published in the First Quarter 2005 Directors & Boards.

AlixPartners (http://www.alixpartners.com), the international corporate turnaround, performance improvement and financial advisory firm, announced that their successful turnaround work at client Jarvis PLC, led by Eric Simonsen, a managing director with the firm, has been awarded the Turnaround Management Association's 2006 "International Turnaround of the Year." Jarvis is a UK-based civil engineering firm.

Proxy Governance Inc. (http://www.proxygovernance.com), an independent provider of proxy analysis, automated global voting, and U.S. compliance services, announced that Philip R. Lochner Jr. has agreed to serve on the firm's independent Policy Council. The Policy Council sets the broad policy framework for the firm's proxy voting policies and reviews the decision-making process of the staff. The Council also has the authority to review specific proxy recommendations and recommend reversing them if it believes they are not in the best interests of increasing long-term shareholder value. Lochner was commissioner of the U.S. Securities and Exchange Commission from 1990 to 1991. He held various positions at Time Warner Inc. including general counsel, secretary, and chief administrative officer, until he retired from that company in 1998. He currently serves on the boards of Adelphia Communications Corp., Apria Healthcare Group Inc., CLARCOR Inc., CMS Energy Corp. and Solutia Inc.